Do I need a pension?

Before you have a child and family, savings and investments are the things that grown ups have. Spending your money on nights out and new clothes seems important until you have someone dependant on you, someone you have to look after and someone that will cost you a small fortune over the years.

Now Hubby and I are both at an age where we have to pretend to be sensible we felt it was important to organise our finances and look at securing our future. We’ve made a conscious effort to put things in place for most eventualities in the hope that we’ll have enough money for rainy days, emergencies or the little mans desire to have brand new Nike trainers.One of the things we’ve been looking at are pensions.

What is a pension?

A pension is a tax free way of saving for your retirement. You, your employer and the government may make contributions into it, depending on your individual circumstances. Once you hit retirement age (62-65 for women and 65 for men) you can withdraw your money or sell the cash to an insurance company who will provide a regular income until you die.

A pension is a way of saving for the future and ensuring you and your family have an income even after you’ve left work. Your money is invested with the hope it will bring back high returns and increase your pension pay out when its required.

What types of pension are there?

The main three types of pensions are – a state pension, workplace pensions and personal pensions.

State pension

To qualify for a state pension paid out by the Government you must have made at least 30 years worth of National Insurance contributions as a UK tax payer. At £113.10 a week a state pension certainly won’t allow a luxury lifestyle therefore you may need to look into regular savings and investments to mature when you are near retirement age to coincide with a state pension.

Workplace pensions

A workplace pension is where you and your employer make regular monthly pensions payments, often take direction from your wage. These payment are invested by a pension company before being released when you are at retirement age.

I have a workplace pension. I’ve paid into it for around ten years. It was transferred over from my previous place of work to my current one. I pay a percentage from my wage each month and my employer also contributes. I don’t miss the money from my pay each month as it comes off at source and I’m used to the reduction on my salary.

Personal pensions

Personal pensions are more flexible, allowing you to choose something that will meet your individual needs and budget limitations. You don’t have a great deal of say where your money is invested, risk and returns are both often higher.

This is something we’re currently looking into for my husband. Although he has life insurance he has nothing in place for our future, we’ve been looking at different options for a personal pension for him.

Unless you’re very financially savvy (unlike me) you may need some simple and straight forward advice about what pension is best for you. You can seek advice some an independent advisor or any company offering pension products.

I’ve recently read about pension schemes at Nutmeg, an investment management company offering ISA’s and pensions and providing a simply way to manage your savings online. The Nutmeg personal pension is simple to set up and allows you to transfer in any other pensions you may have. The accounts are online and can be accessed by your 24/7, there’s no need to ring a call centre or wait for letters to arrive. You offer advice and will help you arrange a pension and give you any relevant information you need.

With Nutmeg you can start your pension from £5,000, paying in when you want too. If you are a basis rate UK tax payer the government will add a further 25% to any amount you save, up to the value of £40,000.

Complicated stuff? It is but it’s something worth looking into and considering whether it’s something beneficial for your own needs.